An adaptation by the Adaptation Network of “Advancing a Just Transition: A Rights-Based Approach to Climate Financing” Authored by Yasirah Madhi with support from Dr. Basani Baloyi and Dr. Gilad Isaacs originally published for the Climate Ambition to Accountability Project
Climate change is one of the most pressing challenges of our time. Addressing it effectively would require significant financial resources. The report “Performance of the global climate finance architecture: Scale sources and direction of finance” highlights several key issues within the current global climate finance landscape that directly impact climate justice. Here we dive deeper into these issues to highlight the importance of equitable climate finance and the role of the global north.
In 2009 the global north pledged to mobilize $100 billion annually to support climate action in developing countries. However, this target has consistently fallen short – between 2013 and 2020 only a fraction of the promised $100 billion annually was mobilized and much of this was in the form of loans rather than grants. According to the OECD (2022), the closest we came to this target was in 2020, with US$83.3 billion reported, but Oxfam (2020) suggests the actual figure may be closer to US$24.4 billion. This financial architecture often prioritizes the interests of investors over the needs of vulnerable communities leading to further marginalization.
Loans dominate climate finance comprising 71% of the funding while grants and equity make up only 26% and 3% respectively. This trend has been consistent over the years, with the majority of climate finance being allocated through loans rather than grants. This debt-heavy approach places an additional burden on struggling economies of the global south. Additionally, 88% of these loans are provided at market rates further exacerbating the financial strain on these countries.
This shortfall highlights a critical gap in the global commitment to climate justice. The global south, often the most vulnerable to climate impacts, are left without the necessary resources to effectively combat climate change.
Instead of fostering climate resilience, these loans can lead to debt accumulation, undermining the very purpose of climate finance. Concessional loans, grants, and other forms of non-debt creating finance are essential to support sustainable development in these vulnerable regions.
To meet global climate goals, financial flows need to rise dramatically—by 590%—to reach $4 trillion annually by 2030.
A significant imbalance exists in climate finance allocation with 92% directed towards mitigation and less than 10% towards adaptation. This trend reflects the global financial flows, where the majority of funds are channeled towards mitigation efforts like renewable energy and transport. This disparity needs urgent correction. While mitigation efforts are crucial to reduce future climate change, adaptation is vital for the global south currently facing its impacts. Increasing funding for adaptation initiatives is essential for building resilience and protecting the most vulnerable populations from the adverse effects of climate change.
The current financial models also fail to adequately consider the human rights implications of climate investments. Ensuring a just energy transition requires embedding a progressive rights-based approach in climate investment plans to protect vulnerable communities. Investment plans are often complex and lack transparency with limited involvement from affected communities. This leads to decisions that do not account for the social justice and human rights impacts, often leaving vulnerable communities worse off.
The “Billions to Trillions” agenda aims to mobilize private investment by using public funds to de-risk private finance. However, this initiative has fallen short in mobilizing sufficient funds. It also fails to ensure accountability and alignment with human rights principles. The primary issue is that trillions in private finance are not being mobilized due to the perceived riskiness of investing in the global south. This agenda shifts the financial risks to the public sector while prioritizing private profit, thereby undermining the equitable distribution of resources and perpetuating injustice.
Private financing makes up about 49% of total climate finance with commercial financial institutions playing a major role. This substantial share primarily originates from banks, corporations, and other businesses. However, state-owned and national development finance institutions are also crucial in supporting renewable energy and sustainable development. A balanced approach that leverages both private and public financing is necessary to meet the vast financial needs of global climate goals. The global north, with their greater financial capabilities, has a responsibility to lead in mobilizing both public and private resources for climate action.
The global north have historically been the largest contributors to greenhouse gas emissions and consequently bear a significant responsibility in providing financial assistance to the global south. This support is crucial for enabling these countries to mitigate and adapt to climate change impacts. Here’s how the global north can uphold climate justice:
Financial Contributions: The global north must fulfill their commitment to mobilize $100 billion annually and strive to increase this amount to meet rising needs. This funding is vital for supporting the global south in their transition to low-carbon economies and in building climate resilience.
Technology Transfer: Facilitating access to clean and sustainable technologies is critical. Global north should provide the necessary financial and technical support to help the global south not only adopt these technologies but also develop them. This dual focus on technology development and transfer is essential for reducing emissions and increasing energy efficiency. By exploiting the space to innovate and create new technologies, we can ensure a more sustainable future for all.
Capacity Building: Strengthening the capacity of the global south to address climate change effectively is another key area. This includes enhancing skills, knowledge, and institutional frameworks to implement climate policies and projects.
Support for Adaptation: Providing adequate financial resources for adaptation projects is crucial. This support is particularly important for vulnerable communities and countries most affected by climate impacts, such as small island developing states and least developed countries.
Accountability and Transparency: Ensuring transparency and accountability in climate finance is essential. The global north must report their contributions accurately and ensure that funds are used effectively to achieve climate goals.
Closing the climate finance gap is not just about meeting financial targets; it is about ensuring justice and equity in the fight against climate change. The global north have a moral and historical obligation to support the global south, which are disproportionately affected by climate change. By increasing financial flows, balancing mitigation and adaptation funding, and leveraging both private and public financing, we can move towards a more equitable and sustainable future for all.
In conclusion, addressing the challenges in the global climate finance landscape is critical for achieving climate justice. The global north must lead by example, fulfilling their financial commitments and supporting the global south in their climate actions. Only through collective effort and equitable support can we hope to tackle the global climate crisis effectively.
The full paper can be found on the Institute of Economic Justice website here.